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PETITIONER: ATIC INDUSTRIES LTD.

       Vs.

RESPONDENT: H.H. DAVE, ASSTT.  COLLECTOR OF CENTRAL EXCISE AND ORS.

DATE OF JUDGMENT14/02/1975

BENCH: BHAGWATI, P.N. BENCH: BHAGWATI, P.N. GUPTA, A.C. UNTWALIA, N.L.

CITATION:  1975 AIR  960            1975 SCR  (3) 563  1975 SCC  (1) 499  CITATOR INFO :  E          1984 SC 420  (24,26,34,44,45)  R          1989 SC 516  (3,34)  D          1990 SC1676  (7)  RF         1992 SC2055  (6,8)

ACT: Central  Excise  and Salt Act 1944--s. 3  (1)  and  4(a)--Ad valorem assessment--How made.

HEADNOTE: The appellant, which was a manufacturer of dye-stuffs,  sold its  product to, two wholesale buyers at a  uniform  selling price  described  as "the basic selling  price"  less  trade discount  of 18%.  The wholesalers in turn sold the  product to  large consumers such as textile mills and  distributors. One wholesaler sold the dye-stuff to the distributors Pat  a higher  price but allowed 10% discount while the other  sold at  a  lower price and allowed 2-1/2% discount.   The  price charged by both however was so adjusted that the net selling price charged to the distributors was almost the same. The  excise  duty chargeable under s. 3(1)  of  the  Central Excise  and  Salt  Act,  1944 was  ad  valorem.   Section  4 provided-as  to how the value of an article chargeable  with duty  at a rate depending on its value shall  be  determined for the purpose of assessment of excise duty. Before  the excise authorities the appellants claimed  that, for  the purpose of assessing the excise duty the  value  of the dye-stuffs should be taken to be the price at which  the appellants  sold the same to the two wholesale  buyers  less trade  discount  allowed  to these  wholesale  buyers.   The Superintendent  of Central Excise rejected  this  contention and took, for the purpose of assessment, the price at  which the wholesalers sold the dye-stuffs to the distributors.  He did  not,  however, allow any deduction in  respect  of  the discount given by the wholesalers to the distributors  since it  was not uniform.  On appeal the Assistant  Collector  of Central  Excise confirmed the assessing  authority’s  order. On further appeal, the Collector of Central Excise held that in  determining  the  assessable  value,  the  lower   trade discount  of  21% allowed by one of the wholesalers  to  the distributors  only  should  be  deducted.   The  appellant’s

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revision application was rejected by the Central  Government on the ground that since the dye-stuffs manufactured by  the appellant were not available to an independent buyer in open market conditions at price at which these were sold by  them to the wholesalers these prices could not be adopted as  the basis  of (id valorem assessment under s. 4 of the Act.   It was  observed  that these dyestuffs were  available  to  any independent   buyer  in  open  market  conditions   at   the distributors’ prices, that is, at the prizes charged by  the wholesalers  to  the  distributors  and,,  therefore,  these prices  should form the basis of assessment  after  allowing the discount. Dissatisfied with the decision of the Central Government the appellant   filed   a  petition  under  art.  226   of   the Constitution.   The  High Court held that where  the  entire production  was  sold  by  a manufacturer  to  one  or  more favoured  distributors there was no wholesale market in  the sense  of  open market at the site of the factory  where  an independent buyer could purchase the goods in wholesale  and the assessable value must therefore be taken to be the price at  which favoured distributors sell the goods in  wholesale and  if not in wholesale, then, in retail.  The  High  Court accordingly upheld the view of the Central’ Government. Allowing the appeal, HELD  :  (1)(a)  The  assessable  value  of  the  dye-stuffs manufactured by the appellants must be taken to be the price at  which  they  were  sold by the  appellants  to  the  two wholesale dealers less 18% trade discount and not the  price charged by the wholesale dealers to the distributors. [573F- G] 564 (b)  Where  a manufacturer sells the goods  manufactured  by him  in wholesale to a wholesale dealer at arm’s length  and in  the usual course of business, the wholesale  cash  price charged  by him to the wholesale dealer less trade  discount would  represent the value of the goods for the  purpose  of assessment  of  excise.  That would be  the  wholesale  cash price  for  which, the goods are sold at  the  factory  gate within  the meaning of s. 4(a).  The price received  by  the wholesale   dealer   who  purchases  the  goods   from   the manufacturer and in his turn sells the same in wholesale  to other  dealers would be irrelevant to the  determination  of the value of the goods and the goods would not be chargeable to excise on that basis. [573E-F] (c)  The  value of the goods for the purpose of excise  must take  into  account  only the  manufacturing  cost  and  the manufacturing  profit and it must not be loaded  with  post- manufacturing cost or profit arising from post-manufacturing ,operation. [572F] (d)  Once the goods have entered the stream of trade and are on  their  onward journey to the consumer, whether  along  a short or a long course depending on the nature of the  goods and  the conditions of trade, excise is not  concerned  with what happens subsequently to the goods. [573B-C] A. K. Roy v. Voltas Ltd., [1973] 2 S.C.R. 1088, followed.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1868 of 1970. From  the Judgment and Order dated the 30th March,  1970  of the Gujarat High Court in S.C.A. No. 1219 of 1966. N. A.     Palkhivala,  Sol.  J. Sorabji, Ashok Desai, D.  B. Engineer, K.   K. Master, and Ravinder Narain, for the appellant.

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G. L. Sanghi and Girish Chandra, for the Respondents. The Judgment of the Court was delivered by BHAGWATI,   J.-This  appeal,  on,  certificate  of   fitness obtained  under Article 133 (1) (a) of the Constitution,  is directed  against  a judgment of the High Court  of  Gujarat dismissing  Special  Civil  Application  No.  1279  of  1966 preferred  by the appellants challenging the assessments  to excise duty of certain dye-stuffs manufactured by them.  The facts  giving rise to the appeal are few and may be  briefly stated as follows. The-appellants carry on business of manufacturing dye-stuffs in  a  factory situate in a small township  called  Atul  in Bulsar  District  in the State of Gujarat.   The  dye-stuffs manufactured by the, appellants were, throughout the  period relevant to this appeal, sold by them in wholesale units  to two wholesale buyers, namely, ICI (India) Ltd.  (hereinafter referred  to  as ICI) and Atul  Products  Ltd.  (hereinafter referred  to  as Atul) under respective  agreements  entered into  by  them with ICI and Atul.  Seventy per cent  of  the dye-stuffs manufactured by the appellants were sold to  ICI, while  the remaining 30% to Atul.  The price charged by  the appellants to ICI and Atul was a uniform price described  as "the  basic selling price" less trade discount of 18%.   ICI and Atul, in their turn, resold the dye-stuffs purchased  by them  from the appellants to two categories of buyers.   One was the category of textile mills and other large consumers, while the 565 other  was the category of distributors.  The sales  by  ICI and Atul to the textile mills and other large consumers were at the basic selling price without any discount, but so  far as the distributors were concerned, the sales to them by ICI and Atul were at a higher price, though with trade discount. ICI  charged a higher price but allowed 10% trade  discount, while  Atul charged a slightly lower price and  allowed  two and  a half per cent trade discount.  The prices were,  how- ever, so adjusted that the net selling prices charged by ICI and  Atul to :the, distributors were almost the  same.   The distributors, in their turn, resold the dye-stuffs purchased by  them  from  ICI and Atul to the  small  consumers  at  a slightly  higher  price  referred  to  as  "small  consumers price".   No discount was given by the distributors  to  the small consumers. The position which, therefore, obtained during the  relevant period   was  that  the  appellants  sold  the  dye   stuffs manufactured by them in wholesale units, 701% to ICI and 30% to Atul, at the basic selling price, less trade discount  of 18%:  ICI  and Atul in their turn resold a part of  the  dye stuffs  in  retail  units to the  textile  mills  and  large consumers  at  the basic selling price and  the  balance  in wholesale units to the distributors at higher selling prices with  10%  trade discount in case of ICI  and  2-1/2%  trade discount in case of Atul, the net selling prices charged  by both of them, however, being the same; and the distributors, in  their turn, resold the dye stuffs to small consumers  in retail  units  at  the small consumers  price.   It  may  be pointed  out  that  though Atul initially  charged  a  lower selling  price and gave a trade discount of 2-1/2%, it  fell incline  with ICI and adopted the same selling price as  ICI with trade discount of 10% from and after 1st May, 1963. There  was no excise duty on dye-stuffs prior to 1st  March, 1961, but with effect from that date excise duty was imposed for   the   first  time  on  dye-stuffs,   including   those manufactured by the appellants.  The excise duty  chargeable under  the  relevant entry in the first Schedule  read  with

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section  3, sub-section (1) of the Central Excise  and  Salt Act,  1944 was ad valorem, and it was, therefore,  necessary to determine the value of the dye-staffs manufactured by the appellants  for  the purpose of assessing  the  excise  duty payable  on  them.  Section 4 of the Act  provided  how  the value of an article chargeable with duty at a rate depending on  its  value  shall  be  determined  for  the  purpose  of assessment of excise duty.  It said :               "Determination  of  value for the  purpose  of               duty.               Where   under   this  Act,  any   article   is               chargeable  with duty at a rate  dependent  on               the value of the article, such value be deemed               to be-               (a)   the  whole sale cash price for which  an               article  of the like kind and quality is  sold               or is capable of being sold at the time of the               removal  of the article chargeable  with  duty               from  the  factory or any  other  premises  of               manufacture or production, or if a wholesale                566               market does not exist for such article at such               place, at the nearest place where such  market               exists, or               (b)   where  such price is not  ascertainable,               the price at which an article of the like kind               and  quality sold or is capable of being  sold               by the manufacturer or producer, or his agent,               at  the time of the removal of of the  article               chargeable  with  duty from  such  factory  or               other  premises for delivery at the  place  of               manufacture  or production or if such  article               is not sold or is not capable of being sold at               such   place,  at  any  other  place   nearest               thereto.               Explanation.-In determining the price- of  any               article  under  this section no  abatement  or               deduction  shall be allowed except in  respect               of  trade discount and amount of duty  payable               at  the  time of the removal  of  the  article               chargeable with duty from the factory or other               premises aforesaid." The  question  arose as to how the value of the  dye  stuffs manufactured  by  the appellants should be determined  on  a proper  application of the rule aid down in section  4.  The appellants contended before the Excise Authorities that  for the  purpose of assessing the excise duty, the value of  the dye stuffs manufactured by the appellants should be taken to be the price at which the appellants sold the same in whole- sale units to ICI and Atul, less a uniform trade discount of 18% which the appellants at the relevant time gave to  these two  wholesale buyers.  This contention was not accepted  by the  Superintendent of Central Excise who was  the  original assessing authority.  He took the view that the value of the dye  stuffs  for ,the purpose of assessment of  excise  duty should  be taken to be the price at which ICI and Atul  sold the dye stuffs to the distributors and. no deduction  should be  allowed in respect of the discount given by them to  the distributors since it was not uniform, being 10% in case  of ICI  and  2-1/2% in case of Atul.  The  appellants  appealed against the assessment to the Assistant Collector of Central Excise,  but the appeal was unsuccessful and the  assessment was confirmed.  That led to the filling of a further  appeal to the Collector of Central Excise.  This appeal resulted in some gain, little though it was, as the Collector of Central

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Excise held that in determining the, assessable value, trade discount of 21% which was given by Atul to the  distributors should  be allowed to be deducted from the price charged  by ICI  to  the  distributors.   This  was,  however,   plainly illogical.   If  the  price charged by ICI was  taken  as  a basis,  trade  discount of 10% should have been  allowed  as that  was  the discount given by ICI  to  the  distributors. Trade  discount  of  21% given by Atul on  the  lower  price charged by it to the distributors could not be deducted from the price charged by ICI to the distributors which was fixed at  a higher figure because of the larger trade discount  of 10%  given by it to the distributors.  The assessable  value determined by the Collector of Central Excise was a  strange hybrid.  The appellants preferred a revision application  to the,  Central Government against the order of the  Collector of Central Excise.  The, Central 567 Government in revision rejected the main contention of  the, appellants  that  the  value of- the dye  stuffs  should  be arrived  at  the price at watch the same were  sold  by  the appellant to ICI and Atul less 18% trade discount allowed to them.   The  reason for rejecting this contention  was  that since  dye  stuffs manufactured by the appellants  were  not "available to an independent buyer in open market conditions at  prices  at  which these are sold by  them  to  the  Sole Distributors, M/s ICI Ltd. and M/s Atut Products Ltd., these prices  cannot  be  adopted  as  the  basis  of   ad-valorem assessment"  under  section  4  of  the  Act.   The  Central Government,  however,  observed that these dye  stuffs  were "available   to  any  independent  buyer  in   open   market conditions at the sole distributors, prices’ that is, at the price  charged  by  ICI and Atul to  the  distributors  and, therefore, these prices should form the basis of  assessment after allowing discount of 10% on the prices charged by  ICI from the beginning and 2-1/2% on the prices charged by  Atul upto  30th April, 1963 and 10% thereafter and on this  basis directed  refund of the excise duty collected by the  Excise Authorities. The appellants were obviously not satisfied with this rather trivial and insignificant success and since their main  plea was  negatived  by  the Central  Government,  they  filed  a petition in the High Court of Gujarat under Art. 226 of  the Constitution challenging the, validity of the various orders made  by the Excise authorities culminating in the order  of the  Central  Government and seeking a  writ  directing  the Union  of  India  "to refund excess duty  amounting  to  Rs. 1,26,229.80 illegally recovered from the petitioners and  to forbear  from  recovering  duty  from  the  petitioners   in respect. of the said products otherwise than on the basis of the prices charged by the petitioners to the said  wholesale buyers  viz.  ICI and Atul." The Division Bench which  heard the  petition took the view, following certain decisions  of the Calcutta, Mysore, Andhra Pradesh and Bombay High Courts, that  where the entire production is sold by a  manufacturer to one or more favoured distributors, there is no  wholesale market  in  the  sense of open market at  the  site  of  the factory where an independent buyer can purchase the goods in wholesale  and in such a case the price at which  the  goods are  sold by the manufacturer to the  favoured  distributors cannot be taken to be the assessable value of the goods  but the assessable value must be taken to be the price at  which the favoured distributors, in their turn, sell the goods  in wholesale  and  if not in wholesale, then  in  retail.   The Division  Bench accordingly held that the price  charged  by the appellants to ICI and Atul less 18% trade discount could

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not  be adopted for determining the assessable value of  the dye stuffs since ICI and Atul were favoured distributors and not independent buyers and the Central Government was  right in  taking the price charged by ICI less 10% trade  discount and the price charged by Atul less 2-1/2% trade discount  as the  assessable value because "that was the  wholesale  cash price at which the independent buyers could get these  goods in  the nearest wholesale market at the relevant time."  The appellants being agerieved by the decision of the High Court preferred the present appeal after obtaining certificate  of fitness from the High Court. 5--470SupCI/75 568 It  would be seen from the judgment of the, High Court  that the  only  ground  on which the  High  Court  negatived  the contention of the, applicants that the price charged by  the appellants to ICI and Atul less 18% trade discount should be taken  as  the assessable value was that ICI and  Alul  were favoured  distributors and apart from them,  no  independent buyer  could purchase the dye stuffs in wholesale market  at or near the place of manufacture so as to attract the appli- cability of the first Part of section 4(.a). This is  ground of  course, at one time, looked highly plausible,  supported as  it  was by decisions of several High Courts.   But  now, after  the  recent decision of this Court in A.  K.  Roy  v. voltas Ltd.(1) it stands completely decimated.  The facts of that  case  are  a little interesting  and  requires  to  be noticed  in  order  to  understand the  true  ratio  of  the decision. The  respondent in that case carried on inter alia  business of  manufacturing air-conditioners, water-coolers and  their component  parts.  It effected direct sales to consumers  at list  prices and the sales so effected came to about 90%  to 95%  of its production during the relevant period.  It  also sold  its articles amounting to 5% to 10% of its  production to wholesale dealers from different parts of the country  in pursuance  of  agreements  entered  into  with  them.    The agreements  provided  among other things  that  the  dealers should  not  sell  the  articles  sold  to  them  except  in accordance with the list prices fixed by the respondent  and the  respondent would sell the articles to them at the  list prices  less 22% discount.  The dealers were  also  required under  the agreements to give service to the units  sold  in their  terdtory.   Excise duty on the  basis  of  ad-valorem value  was  imposed on air-conditioners,  water-coolers  and parts  of water-coolers from March 1, 1961.  The  respondent claimed,  in  accordance with section 4(a),  that  the  list prices  after deducting the discount of 22% allowed  to  the wholesale  dealers should be taken to be the wholesale  cash price,  for  ascertaining the real value  of  the  articles. This  claim was resisted by the Excise Authorities  and  the respondent was therefore constrained to file a writ petition in  the  High Court of Bombay.  The High Court  allowed  the petition holding that the list prices at which the articles   were sold  to’  the wholesale dealers, less  22%         discount allowed to     them  under the agreements, represented  ’the wholesale cash price’    and  excise  duty  was  accordingly chargeable  under  section  4(a).   The  Excise  Authorities thereupon preferred an appeal by certificate to this Court. The  same argument was advanced before this Court on  behalf of  the Excise Authorities which has found favour  with  the High  Court  in the present case.   The  Excise  Authorities contended  that the agreements with, the whole-sale  dealers conferred certain extra-commercial advantages upon them, and so,  the  sales  to  them  were  not  sales  to  independent

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purchasers  but to favoured ones, and, therefore, the  price charged  would not represent the "wholesale cash  price"  as mentioned  in s. 4(a) of the Act.  They argued that s.  4(a) visualizes  a wholesale market at the place  of  manufacture where articles of like (1)  [1973] 2 S.C.R. 1088. 569 kind and quality are sold or could be sold and that it  also postulates  a  market  where  any  wholesale  purchaser  can purchase  the articles, and, as no articles of a  like  kind and quality were sold, at or near the place of  manufacture, and  as  the wholesale sales were confined to  the  favoured buyers,  there  was  no wholesale market  at  the  place  of manufacture.  It was further argued that "articles of a like kind  and  quality" is a phrase which suggests  goods  other than those under assessment and that one must disregard  the price fetched by the sale of the goods themselves. speaking  on behalf of the Court, explained the  true  scope and  meaning  of  section 4(a) and its  applicability  in  a situation of this kind in the following words               "We  do not think that for a wholesale  market               to exist, it is necessary that there should be               a  market  in the physical sense of  the  term               where  articles of a like kind or quality  are               or  could be sold or that the articles  should               be sold to so-called independent buyers.               Even if it is assumed that the latter part  of               S.  4(a) proceeds on the assumption  that  the               former  part  will apply only if  there  is  a               wholesale  market at the place of  manufacture               for  articles of a like kind and quality,  the               question  is  what exactly is the  concept  of               wholesale market in the context.  A  wholesale               market does not always mean that there  should               be an actual place where articles are sold and               bought on a wholesale basis.  These words  can               also  mean  the potentiality of  the  articles               being sold on a wholesale basis.  So, even  if               there  was no market in the physical sense  of               the  term at or near the place of  manufacture               where the articles of a like kind and  quality               are  or could be sold, that would not  in  any               way  affect  the existence of  market  in  the               proper sense of the term provided the articles               themselves could be sold wholesale to traders,               even though the articles  are sold to them  on               the basis of agreements whichconfer    certain,               commercial    advantages   upon    them.    In               other words,    the  sale  to  the   wholesale               dealers did not cease to bewholesale sales               merely because the wholesale dealers hadentered               into agreement with the respondent under which               certain  commercial  benefits  were  conferred               upon   them   in   consideration   of    their               undertaking  to  do service  to  the  articles               sold,  or  because of the fact that  no  other               person  could purchase the articles  wholesale               from  the respondent.  We also think that  the               application  of clause (a) of s. 4 of the  Act               does  not  depend upon any hypothesis  to  the               effect that at the time and place of sale, any               further  articles  of like  kind  and  quality               should have been sold.  If there is an  actual               price for the goods themselves at the time and               place of sale and if that is a ’wholesale cash

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             Price’.  the  clause is not  inapplicable  for               want of sale of other goods of a like kind and               quality.  570 The   learned  Judge then referred to the  decision  of  the Privy  Council  in Ford Motor Company of  India  Limited  v. Secretary of State India in Council(1) and pointed out  that :               "This case is an authority for the proposition               that mere existence of the agreements  between               the respondent and the wholesale dealers under               which  certain obligations were undertaken  by               them  like service to the articles, would  not               render  the price any the less the  ’wholesale               cash  price.  TO put it in other words,  event               if the articles in question were sold only  to               wholesale  dealers on the basis of  agreements               and not to independent persons, that would not               make  the price for the safes  anything  other               than the ’wholesale cash price.  The  argument               that  what  was  relevant  to  determine   the               ’wholesale cash price, under cl. (a) of s.  30               of the Sea Customs Act, 1878, was the price of               goods of a like kind and quality was negatived               by  the  Privy Council by  saying  that  goods               under  assessment may, under el. (a)  be  con-               sidered  as  members of their own  class  even               though  at the time and place  of  importation               there are no other members and that the  price               obtained for them may correctly represent  the               price obtainable for goods of a like kind  and               quality at the time and place of importation." Then,  with reference to the decisions of the  various  High Courts, which had taken a different view, the learned  Judge observed : "We do not think that these decisions, in so  far as  they hold that the price of sales to  wholesale  dealers would not represent the wholesale cash price for the purpose of s. 4(a) of the Act merely because the man*, facturers had entered into agreements with them stipulating for commercial advantages, are correct", and proceeded to add :               "If   a  manufacturer  were  to   enter   into               agreements with dealers for wholesale sales of               the articles manufactured on certain terms and               conditions,  it  would not  follow  from  that               alone that the price for those sales would not               be the ’wholesale cash price, for the  purpose               of  s. 4(a) of the Act if the agreements  were               made at arms length and in the usual course of               business.               There can be no doubt that the ’wholesale cash               price’ has to be ascertained only on the basis               of transactions at arms length.  If there is a               special or favoured buyer to whom a  specially               low   price  is  charged  because  of   extra-               commercial considerations, e.g. because he  is               relative   of  the  manufacturer,  the   price               charged  for  those  sales would  not  be  the               ’wholesale  cash  price,  for  levying  excise               under  section  4(a)  of  the  Act.   A   sole               distributor  might or might not be a  favoured               buyer according as terms of the agreement with               him  are fair and reasonable and were  arrived               at on purely commercial basis.  Once wholesale               dealings  at arms length are established,  the               determination of the whole-

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             (1)   65 I.A.32.                571               sale cash price for the purpose of s. 4(a)  of               the  Act  may, not depend upon the  number  of               such  wholesale  dealing. The  fact  that  the               respondent  sold  90  to 95 per  cent  of  the               articles  manufactured  to  consumers   direct               would  not  make the, price of  the  wholesale               sales of the rest of the articles any the less               the ’wholesale cash, price’ for the purpose of               S.  4(a),  even  if  these  sales  were   made               pursuant to agreements stipulating for certain               commercial advantages, provided the agreements               were  entered into at arms length and  in  the               ordinary course of business."               it   is  not  necessary  for  attracting   the               operations  of s. 4(a) that there should be  a               large number of wholesale sales.  The  quantum               of  goods sold by a manufacturer on  wholesale               basis  is entirely irrelevant.  The mere  fact               that such sales may be few or scanty does  not               alter the true position." On this view, it was held that the respondent was liable  to be  charged  with  excise duty on the  basis  of  the  price payable  by  the  wholesale  dealers,  after  deducting  22% discount, under section 4 (a). This  decision  provides a complete refutation of  the  view taken  by the High Court in the present case.  In fact,  the present case is much stronger than the Voltas case  (supra). In  the  Voltas  case  (supra), 90 to 95  per  cent  of  the production was sold by the manufacturer in retail and only a small  percentage,  namely  5 to 10 per  cent  was  sold  in wholesale  and yet the price charged by the manufacturer  to the  wholesale dealers less trade discount of 22% was  taken as ’the wholesale cash price’ for assessment of value  under s. 4(a).  Here, on the contrary, no retail sales at all were effected  by  the appellants and the entire  production  was sold  in wholesale to ICI and Atul under agreements  entered into with them.  Moreover, it was not in dispute between the parties  that the agreements entered into by the  appellants with ICI and Atul were made at arms length and in the  usual course  of  business.   It was not the case  of  the  Excise Authorities  at  any  time that specially  low  prices  were charged  by the appellants to ICI and Atul because of  extra commercial  considerations  or  that  the  agreements   were anything  but  fair and reasonable or arrived at  on  purely commercial  basis.   The  wholesale  dealings  between   the appellants and lCI and Atul were purely commercial  dcalings at  arms length and the price charged by the appellants  for sales in wholesale made to ICI and Atul less trade  discount of 18% was, therefore, clearly ’wholesale cash price’ within the  meaning of s. 4(a) and it did not make  any  difference that the wholesale dealings of the appellants were  confined exclusively  to  ICI and Atul and apart from these  two,  no independent  buyers  could  purchase  the  ’dye  stuffs   in wholesale from the at) appellants. The  Excise Authorities, robbed of what they thought  was  a strong  argument  prior  to  the  decision  in  Voltas  case (supra), then tried to 572 fall  back on a subsidiary argument in an attempt  to  save, the  assessments.   They  contended that all  that  S.  4(a) provides  is  that  the value of the article  sought  to  be charged  to excise duty shall be deemed to be the  wholesale cash  price for which the article is sold or is  capable  of

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being  sold and it does not say which wholesale  cash  price shall  be taken to be the value of the article-that  charged by the manufacturer to the wholesale dealer or that  charged by  the  wholesale dealer who having purchased  the  article from  the  manufacturer  sells it in  wholesale  to  another dealer.   The latter price, they pointed out, would  equally be  the wholesale cash price within the meaning of s. 4  (a) as it would be the price at which the article is sold or  in any event capable of being sold in the wholesale market  and there  is  no reason why it should not be taken  to  be  the value of the article for the purpose of assessment under  s. 4(a).  The contention, therefore, was that the price charged by  ICI and Atul to the dealers less trade discount  allowed to  them should be taken to be the assessable value  of  the dye  stuffs and not the price charged by the  appellants  to ICI and Atul less trade discount of 18%.  This contention is without  force and must be rejected.  It violates two  basic principles underlying imposition of excise duty. In the first place, as pointed out by Mathew, J., in Voltas’ case  (supra),  "excise  is  a tax  on  the  production  and manufacture of goods-Section 4 of the Act therefore provides that  the  real value should be found  after  deducting  the selling cost and selling profit and that the real value  can include  only the manufacturing cost and  the  manufacturing profit.   The section makes it clear that excise  is  levied only on the amount representing the manufacturing cost  plus the  manufacturing  profit and  excludes  post-manufacturing cost   and  the  profit  arising  from   pos   manufacturing operation,  namely, selling profit." The value of the  goods for  the purpose of excise must take, into account only  the manufacturing cost and the manufacturing profit and it  must not  be,  loaded  with  post-manufacturing  cost  or  profit arising   from  post-manufacturing  operation.   The   price charged  by  the  manufacturer  for sale  of  the  goods  in wholesale would, therefore, represent the real value of  the goods for the purpose of assessment of excise duty.  If  the price  charged  by the wholesale dealer  who  purchases  the goods  from the manufacturer and sells them in wholesale  to another  dealer  were taken as the value of  the  goods,  it would  include  not  only the  manufacturing  cost  and  the manufacturing  profit  of  the  manufacturer  but  also  the wholesale dealer’s selling cost and selling profit and  that would be wholly incompatible with the, nature of excise.  It may  be noted that wholesale market in a particular type  of goods  may be in several tiers and the goods may  reach  the consumer after a series of wholesale transactions.  In  fact the more common and less expensive the goods, there would be greater  possibility  of  more than one  tier  of  wholesale transactions.    For  instance,  in  a  textile   trade,   a manufacturer  may  sell his entire production  to  a  single wholesale  dealer  and the latter may in his turn  sell  the goods  purchased by him from the manufacturer  to  different wholesale  dealers  at ’State level, and they may  in  their turn sell the goods to wholesale 573 dealers at the district level and from the wholesale dealers at  the  district  level  the goods may  pass  by  sale,  to Wholesale  dealers  at the city level and  then,  ultimately from the wholesale dealers at the city level, the goods  may reach the consumers.  The only relevant price for assessment of  value of the goods for the Purpose of excise In  such  a case   would   be  the  wholesale  cash  price   which   the manufacturer  receives  from  sale to  the  first  wholesale dealer,  that is, when the goods first enter the  stream  of trade.  Once the goods have entered the stream of trade  and

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are on their onward journey to the consumer, whether along a short or a long course depending on the nature of the  goods and  the  conditions of the trade, excise is  not  concerned with  what  happens subsequently to the goods.   It  is  the first  immediate  contact between the manufacturer  and  the trade  that is made decisive for determining  the  wholesale cash  price which is to be, the measure of the value of  the goods  for the purpose of excise.  The second or  subsequent price, even though on wholesale basis, is not material.   If excise  were  levied on the basis of  second  or  subsequent wholesale  price,, it would load the price with  a  postman- factoring element, namely,. selling cost and selling  profit of the wholesale dealer.  That would be plainly contrary  to the true, nature of excise as explained in the Voltas’  case (supra).   Secondly, this would also violate the concept  of the factory gate sale which is the basis of determination of value of the goods for the purpose of excise. There can, therefore, be no doubt that where a  manufacturer sells  the  needs  manufactured by him  in  wholesale  to  a wholesale  dealer at arms length and in the usual course  of business,  the  wholesale cash price charged by him  to  the wholesale  dealer  less trade discount would  represent  the value of the, goods for the purpose of assessment of excise. That  would be the wholesale cash price for which the  goods are sold at the factory gate within the meaning of s.  4(a). The price received by the wholesale dealer who purchases the goods  from the manufacturer and in his turn sells the  same in  wholesale  to other dealers would be irrelevant  to  the determination  of  the  value and the  goods  would  not  be chargeable  to  excise on that basis.   The  conclusion  is, therefore, inescapable that the assessable value of the  dye stuffs  manufactured by the appellants must be taken  to  be the  price at which they were sold by the appellants to  ICI and Atul less 18% trade discount, and not the price  charged by ICI and Atul to their dealers. We,  therefore, allow the appeal, reverse the judgment of  , the  High Court and quash and set aside the  Assessments  to excise duty made by the Excise Authorities on the dye stuffs manufactured  by the appellants.  We direct the  respondents to  refund to the appellants forthwith the amount  collected in  excess  of  the  correct  duty  of  excise  leviable  in accordance  with the principle laid down in  this  judgment. The  respondents  will pay to the appellants costs  in  this Court as well as in the High Court. P.B.R.             Appeal allowed. 574